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How to write a Letter of Intent

Writing an income property

Los An What is a Letter of Intent for Real Estate?

 A letter of intent is used for commercial real estate deals. Commercial real estate agents are very comfortable with letters of intent, whereas residential brokers may have never heard of or used them before. 

 Letter of Intent (LOI) is a nonbinding initial offer outlining the basic terms that is shorter and simpler than a purchase agreement or Lease. 

 Buyers of commercial properties need to hire an attorney to review their commercial contracts. Commercial buyers are considered savvy buyers so it is buyer beware. Lawyers are expensive. To save time and resources both buyer and seller want to be on the same page with the most basic deal terms- most importantly price.

 I would like to note that an LOI is non binding. It usually has that written in the LETTER (not contract). Sometimes you can sign it to show good faith. The real contract is the sale agreement or lease.

 Here is a list of the basic terms you might see  pop up in a LOI:

 Occupancy for Multifamily

 Escrow Length  

 Downpayment / Financing

 Escrow Length

 Commissions

 Letter of Intent Commercial Leases

 LOI LETTER HEADER

 Commercial Lease LOIs look different than purchase LOI because they contain different terms.

 Rent Abatement – In LA Class A Office Market common to get 1 month rent abatement per year. This will lowered the $PSF so factor it into your calculations.

 Tenant Improvements TIs – sometimes the landlord pays the TIs and sometimes the tenant. Landlords will also make spec suites.  

 The size of the suite (Price calculated by rent times the square foot so the calculation of sqft factors into the cost and expenses)

 Common Area Maintance Fee (CAM) – You pay some of landlords taxes as part of your lease fees as well as the utility and maintenance cost to upkeep the facility. 

 Utilities – what landlord pays what tenant pays

 Lease Term- for commercial it is usually 3 years, or 5 years- Landlords prefer longer lease terms. For shorter lease terms search for a sublease. These leases usually would contain an option to extend similar term Renewal options

 HVAC- most buildings only have HVAC M-F may be additional cost to weekends.

 Security Deposit – 1-2 Months Rent

Holdover – If tenant stays to the end of the lease and does not renew and does not leave, landlord can raise the rent 150%. 

 Signage – To put up signage whereever the building has signage

 Security- Hours and contacts

 Parking- Most Los Angeles class A office buiding’s have parking ratios per 1,000/sqft. 

 Janitorial

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